SEC Charges Hedge Fund Executive Cooperman with Insider Trading


Later this year the Supreme Court is expected to hand down what may well be the most significant insider trading case in years when U.S. v. Salman, No. 15-628 (S.Ct.) is decided. The decision has the potential to end the controversy which began with the Second Circuit’s decision in U.S. v. Newman, 773 F.3d 438 (2nd Cir. 2014) which the Manhattan U.S. Attorney’s office and the SEC decried could effectively end insider trading enforcement. While the Salman decision by the Ninth Circuit did not in the view of many go as far as Newman, its approach is not that preferred by the government. That case, however, is about illegal tipping. Other significant cases, such as those where the information was misappropriated for trading and which do not involve tipping, are not likely to be impacted, although some may be concerned. One example, is the action brought yesterday against hedge fund manager Leon Cooperman. SEC v. Cooperman (E.D. Pa. Filed Sept. 21, 2016).

The case centers on trading in the securities of Atlas Pipeline Partners, L.P. or APL by defendant Omega Advisors, Inc., a registered investment adviser controlled by Mr. Cooperman. The firm furnishes advice to Omega’s hedge funds and other institutional accounts. The trading took place prior to the announcement on July 28, 2010 by APL that it had entered into an agreement to sell its Elk City operating facilities to Enbridge Energy Partners, L.C.

In mid-May 2010 Enbridge made an offer to purchase Elk City for $720 million. From May through July 2010 Enbridge and APL negotiated the sale of Elk City under the terms of a confidentiality agreement. The discussions were reviewed at a board meeting on June 18. The board planned to consider the sale at a meeting on July 27, 2010. Before that date APL agreed to sell Elk City subject to board approval.

Mr. Cooperman, who has been a hedge fund manager for years, was the beneficial owner of over 9% of APL common stock as of December 31, 2009. This gave Mr. Cooperman a significant level of access to the firm – a technique he had used in the past. Through the first half of the year he reduced his stake in APL, directing controlled accounts to sell millions of dollars in stock. Each day through July 7, 2010 the Cooperman related accounts were net sellers of the stock. APL was having financial difficulties. Mr. Cooperman believed that APL was, in his words, a “shitty business.”

On July 7, 19 and 20 Mr. Cooperman spoke with APL Executive I on the telephone. He learned that the firm was negotiating the sale of Elk City for about $650 million. On July 7 a Cooperman account began buying APL call options. Additional purchases of APL securities were made on July 8, 13, 15, 16, 19, 20, 21, 22, 26 and 27. During the buying Mr. Cooperman again spoke with APL Executive I.

On July 22, Mr. Cooperman spoke with APL Executive 2. During the conversation he asked about the Elk City sale. The Executive was surprised that Mr. Cooperman knew about the transactions. Five days later Executive 1 told Mr. Cooperman that the board had approved the deal. That same day Mr. Cooperman emailed a family member about the transaction. He also emailed two Omega trades, noting that APL had done a major deal. Following the deal announcement defendants had over $4 million in trading profits.

Subsequently, Mr. Cooperman attempted a cover-up. He told Executive 1 that a subpoena relating to trading in APL securities prior to the deal had been sent to Omega. He then sought the Executive’s assurance that they had not shared confidential information prior to the transaction. The Executive thought Mr. Cooperman was attempting to fabricate a story.

The complaint also alleges that Mr. Cooperman violated the beneficial ownership reporting provisions of the securities laws over a period of years. The complaint alleges violations of Exchange Act Sections 10(b), 13(d) and 16(a). The case is pending. The U.S. Attorney’s Office reportedly is awaiting the decision in Salman.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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